EU & China Continue To Grapple With Energy Shortages

Market TalkTuesday, Sep 28 2021
Pivotal Week For Price Action

A sixth straight day of gains pushed ULSD and Brent contracts to fresh 3 year highs overnight as the EU & China continue to grapple with energy shortages, and short term solutions seem to be in short supply. RBOB gasoline continues to lag behind the rest of the energy complex as the seasonal headwinds of the end of the US driving season helps alleviate concerns of shortages on that side of the barrel.

Try plastic bags instead? As we saw during the Colonial shutdown last spring, consumers are losing their minds during the fuel supply crunch in the UK, prompting pleas to avoid filling old water bottles with gasoline.

Something worth noting about this latest rally since the big selloff last Monday is that it’s pushed up the entire forward curve, not just the prompt months (see charts below) which suggests at least some traders don’t see this as a short term supply bottleneck, but a longer term structural supply shortage.  

So far OPEC & friends have remained disciplined in sticking to their gradual increases in supply despite the higher prices, with some countries in the cartel struggling to meet their quotas, proving once again that pumping oil is slightly more complicated than flipping a light switch on and off. Ultimately, the Saudi’s ability to return spare capacity to the market and an increase in US Production should be the limiting factors in this rally, but, the lingering labor shortages and damage done by Ida are going to slow the pace of those increases domestically. 

Shell’s Norco refinery, one of the two remaining refineries shut by Hurricane Ida (and one of the few refineries Shell hadn’t already shuttered or sold) is tentatively planning to begin restart in 2 weeks. The other refinery still shut, P66 Alliance, looks more like it may never reopen as reports surface that a potential buyer intends to convert it to a crude oil terminal.   

Hurricane Sam still looks like no threat to the US beyond dangerous rip currents, while the 2 other systems churning off the coast of Africa are still given high odds of development.  

So far energy and equity markets seem to be taking news of 2 FED governors’ resignations in the wake of (relatively mild seeming) stock trading controversy in stride. The US Federal reserve is arguably the most influential force in equity pricing, putting it second to only OPEC for oil market power, so it’s possible this story could still end up roiling our markets.

Today’s interesting read: An argument to change the biofuel tax credits to favor second generation technologies over “old school” biofuels that are running short on feedstocks.  If last week’s leaked RVO volumes are to be believed, the EPA may already be leaning this direction. 

Click here to download a PDF of today's TACenergy Market Talk.

Market Update 9.28.21

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

Click here to download a PDF of Today's TACenergy Market Talk.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

Click here to download a PDF of today's TACenergy Market Talk

Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap